Bipartisanship at Work – ESOP Legislation Supported by Both Sides of the Aisle

While recently attending the Employee-Owned S Corporation of America (ESCA) Federal Policy Conference in Washington DC, I was struck by the fact that both Democrat and Republican congressional leaders who spoke at the conference were in support of current legislation that expands the idea of broad based employee ownership in privately held companies.  A quick review of the conference material confirmed that Senators and Congressman, Republicans and Democrats in attendance championed the idea of employee ownership, and supported the idea that the current legislation promoting Employee Stock Ownership Plans (ESOPs) needed to be preserved and expanded.  Who knew ESOPs would be the issue where the two parties could find common ground, but ESOPs are an ownership transition strategy that works in both concept and practice for both owners and employees. This bipartisan support of ESOPs has led to broad based support for two new pieces of legislation currently in front of the House of Representatives (HB 1244) and in front of the Senate (SB 1512), both of which would enable more business owners and companies to take advantage of the ESOP option when evaluating liquidity options for their privately held stock.  As a sign of the bipartisan nature of these pieces of legislation, 41 congressman co-sponsored HB 1244 of which 22 are Republican and 19 are Democrats.1ESOP legislation was originally crafted in 1974 as a partial response to concerns over shortfalls in social security.  With the exception of a major revision in 1996, the legislation has largely remained intact.  Why are ESOPs getting more attention now?  Because our elected leaders are all focusing on growing small businesses, expanding jobs and ensuring Americans are provided for in their retirement years.  ESOPs address all of those initiatives, and are a concept that works and deserves to be expanded. The evidence shows that ESOP-owned companies have several characteristics that benefit the general economy, including:

  • Enhancing revenue growth as compared to non ESOP-owned companies2
  • Preserving a corporation’s independence thereby reducing layoffs
  • Tax benefits to both business owners and the businesses themselves
  • Increasing employee productivity and job satisfaction3
  • Longer tenured employees2,3
  • Employee retirement benefits between 3 to 5 times greater than their 401(k) plans

ESOPs garner bipartisan support because they are a part of the tax code that works for business owners, employees and the business itself.  ESOPs provide business owners with a tax-advantaged liquidity option that preserves the Company’s independence, creates a more loyal, productive workforce, and provides employees additional retirement security.  This is an idea that works so well that even congressmen sitting across the aisle from each other can agree.

 

 

1 H.R. 1244–112th Congress: Promotion and Expansion of Private Employee Ownership Act of 2011. (2011). In GovTrack.us (database of federal legislation). Retrieved September 21, 2011, from http://www.govtrack.us/congress/bill.xpd?bill=h112-1244 2 Steven F. Freeman, ” Effects of ESOP Adoption and Employee Ownership: Thirty years of Research and Experience” (Organizational Dynamics Working Papers, University of Pennsylvania, 2007). 3 Phillip Swagel and Robert Carroll, “Resilience and Retirement Security: Performance of S-ESOP Firms in the Recession.” (Georgetown University, McDonough School of Business, March 10, 2010)

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Will Stewart

Investment Banking | ESOP
wstewart@pcecompanies.com
Orlando Office

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